FARADAY FUTURE INTELLIGENT ELECTRIC INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All references in this report to “FF,” the “Company,” “we,” “us,” or “our” mean Faraday Future Intelligent Electric Inc., together with its consolidated subsidiaries. Unless the context suggests otherwise, references to “Faraday Future Intelligent Electric Inc.” mean the parent company without its subsidiaries. The following discussion and analysis is intended to help the reader understand FF’s results of operations and financial condition. This discussion and analysis is provided as a supplement to, and should be read in conjunction with FF’s Unaudited Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this quarterly report on Form 10-Q (this “Report” or this “Form 10-Q”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to FF’s plans and strategy for FF’s business, includes forward-looking statements that involve risks and uncertainties. FF’s actual results may differ materially from management’s expectations as a result of various factors, including but not limited to those discussed in the sections entitled “Risk Factors” in the Company’s Annual Report on Form 10-K filed on May 28, 2024 (as amended, the “Form 10-K ”), “Risk Factors” in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 (the “Q1 2024 10-Q”), and “Cautionary N ote Regarding Forward-Looking Statements” below. The objective of this section is to provide investors an understanding of the financial drivers and levers in FF’s business and describe the financial performance of the business. Cautionary Note Regarding Forward-Looking Statements This Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our financial and business performance, market acceptance and success of our business model, our ability to expand the scope of our offerings, and our ability to comply with the extensive, complex, and evolving regulatory requirements. These statements are based on management's current expectations, but actual results may differ materially due to various factors. The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control), and other assumptions that may cause actual results or performa nce to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section titled “ Risk Factors ” in the Form 10-K, as updated in the Q1 2024 10-Q. Shou ld one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation (and expressly disclaim any obligation) to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under the section titled “ Risk Factors ” in the Form 10-K, as updated in the Q1 2024 10-Q, may not be exhaustive. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Availability of Information We make available through our company website, free of charge, our company filings with the Securities and Exchange Commission (the “SEC”) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The reports we make available include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, registration statements, and any amendments to those documents. The website link to our SEC filings is investors.ff.com/financial-information/sec-filings. We intend to use press releases, our Investor Relations website, investor.ff.com, and certain social media accounts as a means of disclosing information and observations about the Company and its business that may be of interest or material to our 55 investors, material, non-public information, and for complying with our disclosure obligations under Regulation FD: Instagram, Facebook, X, LinkedIn, YouTube, FF App, WeChat, Weibo, Toutiao, Douyin, and Futu. The information and observations we post through these social media channels may be deemed material. Accordingly, investors should monitor the Investor Relations website and these social media channels, in addition to following our press releases, filings with the SEC, public conference calls, presentations, and webcasts. The social media channels that we intend to use as a means of disclosing the information described above may be updated from time to time. The information contained on, or that may be accessed through, our website or social media channels, is not incorporated by reference into, and is not a part of, this Report or any other report or document filed with the SEC. Any reference to our website in this Report is intended to be an inactive textual reference only. Overview The Company is a California-based, global, shared, intelligent, mobility ecosystem company is a global, shared, intelligent, mobility ecosystem company with a vision to disrupt the automotive industry. The Company is a holding company incorporated in the State of Delaware on February 11, 2020, conducts its operations through the subsidiaries of FF Intelligent Mobility Global Holdings Ltd. (“Legacy FF”), which was founded in 2014 and is headquartered in Los Angeles, California. Our Class A Common Stock and Public Warrants trade on The Nasdaq Capital Market (“Nasdaq”) under the ticker symbols “FFIE” and “FFIEW,” respectively. FF designs and engineers next-generation intelligent, connected, electric vehicles. We manufacture vehicles at our production facility in Hanford, California (the “FF ieFactory California”). We have additional engineering, sales, and operational capabilities in China and are exploring opportunities for potential manufacturing capabilities in China through a joint venture or other arrangements. Since our founding, we have created major innovations in technology, products, and a user-centered business model. We believe these innovations will enable us to set new standards in luxury and performance that will redefine the future of intelligent mobility. We believe the following combination of capabilities of our products, technology, the upgrade to FF Product and Technology Upgrade Generation 2.0 (PT Gen 2.0), team, and business model distinguish us from our competitors: • We have designed and developed a breakthrough mobility platform — our proprietary Variable Platform Architecture (“VPA”). • Our propulsion system provides a competitive edge in acceleration and range, enabled by an expected industry-leading inverter design, and propulsion system. • Our advanced Internet Artificial Intelligence (“I.A.I.”) technology offers high-performance computing, high speed internet connectivity, Over-the-Air (“OTA”) updating, an open ecosystem for third-party application integration, and an advanced autonomous driving-ready system, in addition to several other proprietary innovations that enable us to build an advanced, highly-personalized user experience. • Since inception, we have developed a portfolio of intellectual property, established our supply chain, and assembled a global team of automotive and technology experts and innovators to achieve our goal of redefining the future of the automotive industry. As of September 30, 2024, we have approximately 660 active patents globally. • We believe that the FF 91 Futurist (the “FF 91,” “FF 91 Futurist,” or “FF 91 2.0 Futurist Alliance”) is the first ultra-luxury electric vehicle to offer a highly-personalized, fully-connected user experience for driver and passengers. We started production on the first FF 91 Futurist and delivered the first FF 91 2.0 Futurist Alliance in 2023. • Our planned B2C passenger vehicle pipeline includes the FF91 series, the FF81 series, and the FF71 series. • Subject to future financing, we plan to produce and deliver our second passenger vehicle, the FF 81, which is expected to be designed to be a premium, mass-market electric vehicle positioned to compete against the Tesla Model S, Tesla Model X, the BMW 5-series, the Range Rover Sport and similar vehicles. • Subject to future financing, we plan to develop a mass-market passenger vehicle, the FF 71. We expect to start production and deliveries of the FF 71 subsequent to production and deliveries of the FF 81. The FF 71 is expected to be designed to integrate full connectivity and advanced technology into a smaller vehicle size and is positioned to compete with vehicles such as the Tesla Model 3, Tesla Model Y, and the BMW 3-series. • Subject to future financing, we plan to develop a Smart Last Mile Delivery (“SLMD”) vehicle to address the high-growth, last-mile delivery opportunity, particularly in Europe, China and the U.S. Our modular VPA facilitates entry into the last-mile delivery segment, allowing us to expand our total addressable market and avenues of growth. 56 • We have updated our corporate strategy to include a China-U.S. Automotive Bridge Strategy (the “Bridge Strategy”). The Bridge Strategy marks a return to our earlier two-brand strategy, which seeks to distinguish between the spire segment (FF brand) and mass market segment (second brand) of the EV industry. We intend to seek to establish a second mass market-focused brand by working with one or more China-based OEMs and parts suppliers (“Bridge Strategy Partners”) and to procure quasi-complete components and parts that we would enhance by adding AI and Vehicle Software technology and product R&D found in our flagship FF 91 brand. This could create a compelling value proposition to consumers in the AI EV mass-market, which is a market that currently has limited offerings. Via the Bridge Strategy, there is the potential to materially accelerate the production timeline for a mass-market AI EV. While the mechanical platform of the mass-market product would be from Bridge Strategy Partners, we intend to seek to utilize a component mix sufficient to reach part level duty by fulfilling the criteria for part supplier and manufacturing requirement. For a discussion of material risks relating to the Bridge Strategy, please see Part II, Item 1A., Risk Factors – “Our latest business strategy, which we refer to as the Bridge Strategy, is subject to numerous risks and uncertainties” in t he Q1 2024 10-Q. All FF vehicles are expected to be available for sale in the U.S., China and the Middle East, with potential expansion to European markets. Emerging Growth Company Status Section 102(b)(1) of the Jumpstart Our Business Startups Act (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies. Any such election to not take advantage of the extended transition period is irrevocable. We are an “emerging growth company” as defined in Section 2(a) of the Securities Act and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We expect to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used. Segment Information On February 26, 2023, after an assessment by the Board of Directors (the “Board”) of the Company’s management structure, the Board approved our Chief Product and User Ecosystem Officer (Mr. Yueting Jia, who is also FF’s founder) reporting directly to the Board. In addition, the Board approved our product, mobility ecosystem, I.A.I., and advanced research and development (“R&D”) technology departments reporting directly to the Chief Product and User Ecosystem Officer. The Board also approved our user ecosystem, capital markets, human resources and administration, corporate strategy and China departments reporting to both the Chief Product and User Ecosystem Officer and the Global Chief Executive Officer, subject to processes and controls to be determined by the Board after consultation with our management. Based on his responsibilities within the Company, the Board determined that Mr. Jia is an “officer” of the Company within the meaning of Section 16 of the Exchange Act and an “executive officer” of the Company under Rule 3b-7 under the Exchange Act. We have determined that our co-Chief Operating Decision Makers (“co-CODMs”) are both our Global CEO and our Chief Product and User Ecosystem Officer. We have determined that we operate in one operating segment and one reportable segment, as the co-CODMs review financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Substantially all of our consolidated operating activities, including our long-lived assets, are located within the United States. Given our early-revenue operating stage, we currently have no concentration exposure to products, services or customers. 57 Recent Developments During the three months ended September 30, 2024, these additional milestones and events took place: • On September 22, 2024, we delivered an FF 91 2.0 Futurist Alliance to Born Leaders Entertainment in Hollywood, where Born Leaders also became a Developer Co-Creation Officer for us. • On September 19, 2024, we officially launched our second brand, Faraday X (FX), specifically focused on producing affordable electric vehicles priced between $20,000 and $50,000 to capture a broader consumer market. • On September 5, 2024, we entered into a Junior Securities Purchase Agreement (the “Junior Secured SPA”) with institutional investors for $30.0 million in commitments, consisting of $22.5 million in cash and $7.5 million converted from a prior loan (see Note 7, Notes Payable in the notes to the Unaudited Condensed Consolidated Financial Statements ). The notes pursuant to the Junior Secured SPA have a 10% interest rate, are convertible into common stock, and were issued with warrants to purchase 5.7 million shares with an exercise price of $6.29 . Each investor also received an incremental warrant to fund, at the investor’s sole discretion, additional notes pursuant to the Junior Secured SPA for amounts up to the original principal balance the investor funded. • On August 16, 2024 after market close, the Company’s 1 -for- 40 reverse stock split became effective. • On August 12, 2024, Wei Gao, Head of Global Communication and Community Sales, took delivery of an FF 91 2.0 Futurist Alliance, marking the second delivery in the Start of Delivery Second Phase (SOD2). • On August 2, 2024, we entered into a Waiver Agreement with certain investors holding secured and unsecured convertible notes, allowing adjustments to the notes’ conversion price under specific conditions to reduce cash obligations, providing noteholders with the option to convert at a lower price while waiving accrued interest, and extending their right to purchase additional notes for one year. • On August 1, 2024, we filed a Certificate of Amendment to increase authorized common stock from 463.3 million to 4.17 billion shares, bringing the total authorized shares to 4.18 billion (each on a pre-split adjusted basis). Also on August 1, 2024, we filed a Certificate of Elimination to eliminate the designation of the Series A Preferred Stock classification, reclassifying it as authorized but unissued, following the automatic redemption of all outstanding Series A Preferred shares. • On July 20, 2024, we held an interactive investor Community Day at our Los Angeles headquarters. • On July 18, 2024, we unveiled our Automotive Bridge Strategy, reintroducing a two-brand approach to target both luxury and affordable EV markets, expanding our reach through the integration of advanced AI and software technologies. • On July 11, 2024, we entered into a Master Lease Agreement with Utica Leaseco, LLC with respect to a collateralized loan arrangement (see Note 7, Notes Payable in the notes to the Unaudited Condensed Consolidated Financial Statements ). 58 In the period subsequent to September 30, 2024, these additional milestones and events took place: • On November 1, 2024, we filed a Registration Statement on Form S-1 with the SEC. This registration covers the issuance of Class A Common Stock that are contingently issuable under the terms of the Junior Secured SPA Notes (see Note 7, Notes Payable in the notes to the Unaudited Condensed Consolidated Financial Statements ). • On October 24, 2024, we announced a co-investment agreement with Master Investment Group, led by Sheikh Abdulla Al Qassimi, to establish our future regional headquarters in Ras Al Khaimah, UAE, supporting Faraday’s Middle East expansion strategy. Construction is set to begin by late 2024, with operations expected by late 2025 or early 2026. Faraday Future signed agreements with the Ras Al Khaimah Economic Zone (RAKEZ) for both a current business location and a larger operational facility to strengthen its presence in the UAE’s strategic economic hub. Recent Governance Developments • We made senior leadership changes, appointing Koti Meka as Chief Financial Officer, effective September 23, 2024 and Aaron Ma as Acting Head of EV R&D, effective August 2024, to advance its dual-brand strategy. • On September 22, 2024, we delivered an FF 91 2.0 Futurist Alliance to Born Leaders Entertainment in Hollywood, where Born Leaders also became a Developer Co-Creation Officer for us. • On September 4, 2024, Nasdaq confirmed that we regained compliance with Nasdaq's listing requirements. This followed a series of actions to address deficiencies in timely filing of the Form 10-K and the Q1 2024 10-Q and a minimum bid price deficiency. On June 26, 2024, Nasdaq had granted continued listing, contingent upon meeting filing and minimum bid price requirements by July 31 and August 31, 2024, respectively. On July 30, 2024, we met the periodic reporting compliance requirement by filing our Q1 2024 Form 10-Q. Subsequently, in August 2024, we met the minimum bid price requirements following the August 2024 Reverse Stock Split. • On August 27, 2024, we appointed Tin Mok as Head of FF United Arab Emirates (“UAE”), where he will lead business development and strategic financing efforts in the UAE and Middle East. • On July 31, 2024, at the annual stockholder meeting, our stockholders approved proposals to increase authorized shares, approve a reverse stock split, reelect directors, and amend the 2021 Stock Incentive Plan, raising available shares by 88.3 million (on a pre-split adjusted basis). Components of FF’s Results of Operations Key Factors Affecting Operating Results Our performance and future success depend on several factors that present significant opportunities but also pose risks and challenges including those discussed below and in the section titled “ Risk Factors ” in the December 31, 2023 Form 10-K and March 31, 2024 Form 10-Q. Production and Operations We expect to continue to incur significant operating costs that will impact our future profitability, including R&D expenses as we introduce new models and improve existing models; capital expenditures for the expansion of our manufacturing capacities; additional operating costs and expenses for production ramp-up; raw material procurement costs; general and administrative expenses as we scale our operations; interest expense from debt financing activities; and selling and distribution expenses as we build our brand and market our vehicles. We may incur significant costs in connection with our services as we deliver at scale the FF 91 Futurist, including servicing and warranty costs. Our ability to become profitable in the future will depend on our ability to successfully market our vehicles and control our costs. Through September 30, 2024, we have sold a t otal of five and leased nine vehicles. As a result, we will require substantial additional capital to develop products and fund operations for the foreseeable future. Until we can generate sufficient revenue from product sales, we will fund our ongoing operations through a combination of various funding and financing alternatives, including equipment financing of the FF ieFactory California, secured syndicated debt financing, convertible notes, working capital loans, and equity offerings, among other options. The particular funding mechanisms, terms, timing, and amounts are dependent on our assessment of opportunities available in the marketplace and the circumstances of the business at the relevant time. Any delays in the successful completion of our FF ieFactory California will impact our ability to generate revenue. For additional discussion of the substantial doubt about our ability to continue as a going concern, see Note 2, 59 Liquidity and Capital Resources and Going Concern in the notes to the Unaudited Condensed Consolidated Financial Statements and for further details on liquidity, see the “Liquidity and Capital Resources” section below. Revenue Recognition We began the production of our FF 91 Futurist in March 2023 and started making deliveries to customers in August 2023. During the three months ended September 30, 2024, we did not sell any vehicles and leased out two vehicles. Automotive sales revenue includes revenues related to deliveries of new vehicles, and specific other features and services including home charger, charger installation, 24/7 roadside assistance, Over-The-Air (“OTA”) software updates, internet connectivity and destination fees. We recognize revenue on automotive sales upon delivery to the customer, which is when control of a vehicle transfers. Payments are typically received at the point control transfers or in accordance with payment terms customary to the business and as indicated in the sales contract. OTA software updates are provisioned upon transfer of control of a vehicle and recognized over time on a straight-line basis as we have a stand-ready obligation to deliver such services to the customer. For obligations related to automotive sales, we estimate standalone selling price by considering costs used to develop and deliver the good or service, third-party pricing of similar options and other information that may be available. The transaction price is allocated among the performance obligations in proportion to the standalone selling price of our performance obligations. Vehicle contracts do not contain a significant financing component. Revenue from promises to the customer that are considered immaterial are combined with the vehicle performance obligation and recognized when the product has been transferred. We accrue costs to transfer these immaterial goods and services regardless of whether they have been transferred. We provide customers with a residual value guarantee which may or may not be exercised in the future. Co-creation Arrangements As part of our Futurist Product Officers (“FPO”) Co-Creation Delivery program that began in August 2023, we have entered into co-creation agreements with certain customers. The arrangement leverages some of our sales and leasing customers to provide valuable driving data, insights, marketing and brand awareness of the FF 91 vehicle. For the services performed, we compensate the respective customers through a monthly consulting fee payment or a discount on their monthly lease payment. Management examined in detail the services provided by each respective customer in accordance with the co-creation agreement, established various data points, and rationally assigned a dollar amount that was deemed representative of the fair value of the services. Co-creation payments that exceed the fair value of the distinct services performed by the customer are considered consideration paid to the customer and were treated as a reduction in revenue. We have entered into and may continue to enter into co-creator consulting agreements with our customers under which customers share feedback, driving data, ideas, and experiences with our engineers, social media posts and other promotions in exchange for specified fees. We consider these arrangements consideration payable to a customer. The consideration paid to the customer relates to marketing and R&D services that are distinct and could be purchased by us from a separate third party. We perform an analysis in which we maximize the use of observable market inputs to ascribe a fair value to these services and record the fair value of these services to sales and marketing expense or R&D expense, as applicable. Any consideration payable to a customer that is above the fair value of the distinct services being provided is treated as a reduction of revenue. Automotive Leasing Revenue Operating Leasing Program We have outstanding leases under our vehicle operating leasing program in the United States. Qualifying customers are permitted to lease a vehicle for up to 36 months. At the end of the lease term, customers are generally required to return the vehicles to us. We account for these leasing transactions as operating leases. We record leasing revenues to automotive leasing revenue on a straight-line basis over the contractual term, and we record the depreciation of these vehicles to cost of automotive leasing revenue. Our policy is to exclude taxes collected from a customer from the transaction price of automotive contracts. Sales-Type Leasing Program We have outstanding leases accounted for as sales-type leases under Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”). Customers have the right to purchase the vehicle at the end of the lease term, which is usually 36 months. A customer qualifies under this program if the purchase option is reasonably certain to be exercised, and we therefore expect the customer to take title to the vehicle at the end of the lease term after making all contractual payments. We recognize all revenue and costs associated with the sales-type lease as automotive leasing revenue and automotive leasing cost of revenue, 60 respectively, upon delivery of the vehicle to the customer when collectability of lease payments is probable at lease commencement. If collectability of lease payments is not probable at commencement, we recognize the lease payments as deposit liability and do not derecognize the leased vehicle until such point that collectability of lease payments becomes probable. Customer Deposits and Deferred Revenue Our customers may reserve a vehicle and preorder certain services by making a customer deposit, which is fully refundable at any time. Refundable deposits, for vehicle reservations and services, received from customers prior to an executed vehicle purchase agreement are recorded as customer deposits within Accrued expenses and other current liabilities on our Condensed Consolidated Balance Sheets. When vehicle purchase agreements are executed, the consideration for the vehicle and any accompanying products and services must be paid in advance prior to the transfer of products or services by us. Such advance payments are considered non-refundable, and we defer revenue related to any products or services that are not yet transferred. Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the balance sheet date. Warranties We provide a manufacturer’s warranty on all vehicles sold. The warranty covers the rectification of reported defects via repair, replacement, or adjustment of faulty parts or components. The warranty does not cover any item where failure is due to normal wear and tear. This assurance-type warranty does not create a performance obligation separate from the vehicle. Management tracks warranty claims by vehicle ID, owner, and date. As we continue to manufacture and sell more vehicles, we will reassess and evaluate our warranty claims for purposes of our warranty accrual. Cost of Automotive Sales Revenue Cost of revenue includes direct and indirect materials, labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistic costs, vehicle connectivity costs, and reserves for estimated warranty expenses. Cost of automotive sales revenues also includes adjustments to warranty expense. Cost of services and other revenue includes costs associated with providing non-warranty after-sales services, costs for retail merchandise, and costs to provide vehicle insurance. Cost of services and other revenue also includes direct parts and material. Cost of Automotive Leasing Program Cost of automotive leasing revenue includes the depreciation of operating lease vehicles, cost of goods sold associated with direct sales-type leases and warranty expense related to leased vehicles. Operating Expenses Research and Development Research and Development (“R&D”) activities represent a significant part of our business. Our R&D efforts focus on the design and development of our electric vehicles and continuing to prepare our prototype electric vehicles to exceed industry standards for compliance, innovation, and performance. R&D expenses consist of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for our employees focused on R&D activities, other related costs, depreciation, R&D services provided by co-creators, and an allocation of overhead. Sales and Marketing Sales and marketing expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for our employees focused on sales and marketing, costs associated with sales and marketing activities, marketing services provided by co-creators, and an allocation of overhead. Marketing activities are those related to introducing our brand and our electric vehicle prototypes to the market. General and Administrative General and administrative expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for our employees associated with administrative services such as legal, human resources, information technology, accounting and finance, other related costs, and legal loss contingency expenses, which are our 61 estimates of future legal settlements. These expenses also include certain third-party consulting services, certain facilities costs, and any corporate overhead costs not allocated to other expense categories. Settlement on Accrued Research and Development Expenses Settlement on accrued research and development expenses represents adjustments resulting from settling previously accrued R&D obligations at amounts lower than initially estimated. This line item generally includes gains arising from negotiations or dispute resolutions with vendors, technology partners, or service providers, where the final settlement amount reduces the originally accrued expenses associated with R&D activities. Lease Impairment Loss Lease impairment loss includes impairment charges on right-of-use (ROU) assets for leased properties that we have vacated, abandoned, or plan to terminate. This line item captures losses recognized when the carrying value of an ROU asset exceeds its fair value due to our exiting premises or terminating leases. Impairment losses may occur when facilities, including retail, office, or research spaces, are vacated, and the remaining lease liabilities continue to be recognized on the balance sheet. Lease impairment loss is not offset against lease termination gain, which is included in Other Income (Expense), net discussed below. Loss on Disposal of Property, Plant and Equipment Loss on disposal of property, plant and equipment relates to the abandonment of certain FF 91 Futurist program construction in progress assets, primarily vendor tooling, machinery, and equipment, due to the redesign of the related FF 91 components and implementation of our cost reduction program. Charges associated with disposals are recognized within operating expenses. Change in Fair Value of Earnout Liability Legacy FF stockholders, as of the July 21, 2021 closing date of the Business Combination (as defined in Note 10, Commitments and Contingencies in the notes to the Unaudited Condensed Consolidated Financial Statements) until its fifth anniversary, are entitled to contingent consideration of up to 2,605 additional shares of Class A Common Stock in the aggregate in two equal tranches upon the occurrence of each earnout triggering event (“Earnout Shares”). We recognized the Earnout Shares at fair value upon the closing of the Business Combination and classified them in Stockholders’ Equity since the Earnout Shares were determined to be indexed to our own stock and meet the requirements for equity classification in accordance with ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity . From time to time subsequent to the closing of the Business Combination, the Earnout Shares may be classified as derivative liabilities under ASC 815, Derivatives and Hedging , due to us having insufficient authorized shares to fully settle the equity-linked financial instruments in shares. The Earnout Shares reclassified as derivative instruments are recognized at fair value with changes in fair value recognized in earnings until such time as the conditions giving rise to such derivative liability classification are settled or we have sufficient authorized, unissued shares to settle such contracts with shares. Non-operating Expenses Change in Fair Value of (Related Party and Third Party) Notes Payable and Warrant Liabilities Change in fair value measurements consists of the losses and gains as a result of fair value measurements of certain notes payable and warrant liabilities that we record at fair value. Loss on Settlement of (Related Party and Third Party) Notes Payable Loss on settlement of notes payable consists of losses resulting from the settlement of notes payable as part of our ongoing financing activities and losses incurred on modifications of our notes payable that qualify as an extinguishment pursuant to ASC 470-50, Debt–Modifications and Extinguishments . Interest Expense Interest expense primarily consists of interest on outstanding notes payable not marked to fair value, capital leases, certain supplier payables, and vendor payables in trust. Related Party Interest Expense Related party interest expense consists of interest expense on notes payable with related parties not marked to fair value. 62 Other Income (Expense), net Other expense, net primarily consists of foreign currency transaction gains and losses and other expenses such as bank fees and late charges. Foreign currency transaction gains and losses are generated by revaluation of debt and the settlements of invoices denominated in currencies other than the functional currency. Other income, net primarily consists of lease termination gains. Results of Operations Comparison of results of operations for the three months ended September 30, 2024 versus the three months ended September 30, 2023: Three Months Ended September 30, (in thousands) 2024 2023 Unaudited Condensed Consolidated Statements of Operations Revenue $ 9 $ 551 Cost of revenues 21,453 16,131 Gross profit (21,444) (15,580) Operating expenses Research and development 5,180 21,593 Sales and marketing 2,601 5,318 General and administrative 8,278 24,023 Settlement on accrued research and development expenses (14,935) — Lease impairment loss 57 — Loss on disposal on property, plant and equipment 2,582 — Change in fair value of earnout liability — (67) Total operating expenses 3,763 50,867 Loss from operations (25,207) (66,447) Change in fair value of notes payable and warrant liabilities 8,287 17,571 Change in fair value of related party notes payable and related party warrant liabilities 654 4,726 Loss on settlement of notes payable (59,128) (21,357) Loss on related party notes payable — (10,756) Interest expense (1,442) (90) Related party interest expense (1,212) (69) Other income/(expense), net 361 (1,624) Loss before income taxes (77,687) (78,046) Income tax provision 1 — Net loss $ (77,686) $ (78,046) Revenue Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Revenue $ 9 $ 551 $ (542) (98) % Total revenue decreased by $0.5 million for the three months ended September 30, 2024 compared to the same period in 2023 . Automotive leasing revenue was recognized during the three months ended September 30, 2024, though the amount was not material, and no automotive sales revenue was recorded. In contrast, automotive sales revenue totaled $0.6 million for the 63 three months ended September 30, 2023 , with no leasing revenue during that period. The 2023 sales revenue resulted from the initial delivery of our flagship luxury electric vehicle, the FF 91 Futurist. Cost of Revenues Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Cost of revenues $ 21,453 $ 16,131 $ 5,322 33 % Cost of revenues increased by $5.3 million for the three months ended September 30, 2024 compared to the same period in 2023 . This increase was primarily driven by depreciation expenses resulting from placing equipment into service to improve our production capabilities, in particular our paint and body shop, and an increase in corporate cost absorption into inventory and cost of revenues. During the three months ended September 30, 2024 , we continued transitioning our production capabilities to include both luxury and more affordable electric vehicles. This strategic shift, which is aligned with broader market demand, is expected to result in additional fixed cost allocations to cost of revenues as equipment is placed into service, while we continue to optimize our production efficiencies. Research and Development (R&D) Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Research and development $ 5,180 $ 21,593 $ (16,413) (76) % R&D expense decreased by $16.4 million for the three months ended September 30, 2024 compared to the same period in 2023 . This reduction was primarily attributable to a $10.1 million decrease resulting form headcount reductions and the reassignment of R&D personnel to production roles, as well as a $4.3 million decrease in engineering, design, and testing costs . As we transition from an R&D focus to full-scale production, resources have been reallocated from R&D to manufacturing to enhance operational efficiency. This shift supports the commercialization of completed R&D developments while enabling targeted innovation in key areas. Strategic partnerships with technology providers and industry experts have also been established to sustain innovation with reduced internal costs. We have also begun shifting our R&D focus towards the development of more affordable electric vehicle platforms, expanding our technology portfolio to address broader market demands. This strategic shift ensures continued innovation across both luxury and more affordable segments, aligning with evolving industry trends. Sales and Marketing Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Sales and marketing $ 2,601 $ 5,318 $ (2,717) (51) % Sales and marketing expense decreased by $2.7 million for the three months ended September 30, 2024 compared to the same period in 2023 . The reduction was primarily driven by a $1.7 million decrease in compensation expense, a decrease of $0.3 million in advertising costs, and a $0.2 million decrease in professional services expenses. Despite a reduction in sales and marketing personnel, we continue to market effectively by leveraging our Co-Creation strategy, which involves partnerships with industry pioneers and influential personalities. Through this approach, we amplify our brand by engaging high-profile figures and involving users in our product development and marketing processes. Additionally, we host VIP events and participate in major industry showcases to provide customers and stakeholders with immersive experiences of our flagship vehicles, further enhancing customer engagement and brand visibility. These efforts allow us to optimize our marketing reach and increase brand awareness while maintaining lower internal costs. 64 General and Administrative Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % General and administrative $ 8,278 $ 24,023 $ (15,745) (66) % General and administrative expense decreased by $15.7 million for the three months ended September 30, 2024 compared to the same period in 2023 . This decrease was primarily driven by a $6.5 million reduction in professional service fees, a $4.0 million decrease in general expenses, such as rent and insurance costs, and a $1.9 million reduction in wages and wage-related costs. Additionally, there was a $1.9 million decrease in depreciation expense. These reductions reflect our ongoing cost-cutting initiatives aimed at optimizing general and administrative expenses. We have implemented measures to streamline operations, including renegotiating vendor contracts, consolidating office space to reduce rent, and restructuring our workforce to lower wage-related expenses, all while maintaining operational efficiency. Settlement of Accrued Research and Development expenses Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Settlement on accrued research and development expenses $ (14,935) $ — $ (14,935) NM* *NM = not meaningful Gain on settlement of previously accrued R&D expenses increased by $14.9 million for the three months ended September 30, 2024 compared to the same period in 2023 . This gain resulted from a settlement that resolved ongoing disputes over unpaid invoices due to Palantir Technologies Inc. (“Palantir”) As of the date of settlement, we had accrued approximately $19.9 million of R&D expense . Following arbitration, the parties reached a settlement in which we agreed to pay Palantir $5.0 million. We paid $0.2 million in cash and fulfilled the remaining $4.8 million obligation with the issuance of Class A Common Stock. On August 8, 2024, we issued Palantir 252,768 shares of Class A Common Stock valued at $2.4 million. As of September 30, 2024, we had an obligation to pay Palantir the remaining $2.4 million. We settled this obligation on October 1, 2024 through the issuance of 827,526 shares of Class A Common Stock. We recognized a gain of $14.9 million , reflecting the difference between the accrued expenses and the final settlement amount due to Palantir. Loss on Disposal on Property, Plant and Equipment Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Loss on disposal on property, plant and equipment $ 2,582 $ — $ 2,582 NM* *NM = not meaningful. We recognized a $2.6 million loss on the disposal of property, plant, and equipment during the three months ended September 30, 2024. No comparable transactions were recorded during the three months ended September 30, 2023. We dispose of equipment when the assets become obsolete, costly to maintain, or are replaced by more efficient technologies. Change in Fair Value of Earnout Liability Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Change in fair value of earnout liability $ — $ (67) $ 67 NM* *NM = not meaningful. We did not have any earnout shares that were re-measured at fair value during the three months ended September 30, 2024. As of August 25, 2023, upon an increase in our authorized shares of Class A Common Stock, we reclassified the earnout shares from liability classification to equity classification. Once the number of authorized shares of our Class A Common Stock was increased, the earnout shares were determined to be equity classified under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity . The $0.1 million decrease in the fair value of the earnout shares represents the change in fair 65 value of the earnout prior to its reclassification and was recognized as a Change in fair value of earnout liability during the three months ended September 30, 2023. Change in Fair Value of Notes Payable and Warrant Liabilities Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Change in fair value of notes payable and warrant liabilities $ 8,287 $ 17,571 $ (9,284) (53) % During the three months ended September 30, 2024, the fair value of our outstanding notes and warrants were revalued at lower fair values compared to the same period in 2023. The decrease in the fair value of the notes and warrants during the period was driven by factors including: (1) the decline in our stock price during the period; (2) pursuant to the terms of the Waiver Agreement (see Note 7, Notes Payable in the notes to the Unaudited Condensed Consolidated Financial Statements ), interest payments due under the Secured SPA became due at maturity; and (3) the elimination of the interest make-whole pursuant to the Waiver Agreement. These gains were partially offset by $0.7 million in transaction costs during the period. The change in the fair value of our notes payable and warrant liabilities also decreased during the three months ended September 30, 2024 when compared with the same period in 2023 due to a 46% decrease in notes payable outstanding that are remeasured at fair value. Change in Fair Value of Related Party Notes Payable and Related Party Warrant Liabilities Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Change in fair value of related party notes payable and related party warrant liabilities $ 654 $ 4,726 $ (4,072) (86) % During the three months ended September 30, 2024, the fair values of our outstanding related party notes and warrants were revalued at lower fair values compared to the same period in 2023. This decrease was primarily driven by declines in our stock price during the period. T he change in the fair value of our notes payable and warrant liabilities also decreased during the three months ended September 30, 2024 when compared with the same period in 2023 due to a 55% decrease in notes payable outstanding that are remeasured at fair value. Loss on Settlement of Notes Payable Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Loss on settlement of notes payable $ (59,128) $ (21,357) $ (37,771) 177 % The increase in the loss on settlement of notes payable during the three months ended September 30, 2024 was driven by an increase in the notes payable converted during the period compared with the same period in 2023. During the three months ended September 30, 2024, noteholders converted $62.0 million of notes payable compared with $25.8 million during the three months ended September 30, 2023. Additionally, during the three months ended September 30, 2024, we recognized a loss on extinguishment of $2.7 million resulting from the Waiver Agreement. The increase was partially offset by a decrease in the loss on settlement per dollar of principal during the three months ended September 30, 2024. Loss on Related Party Notes Payable Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Loss on related party notes payable $ — $ (10,756) $ 10,756 NM* *NM = not meaningful. There wer e no settlements of related party notes payable during the three months ended September 30, 2024. During the three months ended September 30, 2023, a related party converted Unsecured SPA Notes with an aggregate principal balance of $6.6 million in exchange for 21,850 shares of Class A Common Stock. We recognized a loss on settlement of related party notes payable for the difference between the fair value of the shares issued and the fair value of the debt instrument. 66 Interest Expense Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Interest expense $ (1,442) $ (90) $ (1,352) (1,502) % Interest expense increased by $1.4 million for the three months ended September 30, 2024 compared to the same period in 2023 . This increase was p rimarily due to financial obligations associated with the Hanford, California manufacturing facility. We pursued a sale-leaseback arrangement for this facility to generate liquidity for operational and facility enhancements. However, due to conditions within the sale-leaseback agreement, the transaction was treated as a financing arrangement under U.S. generally accepted accounting principles (“GAAP”), resulting in interest expense rather than lease expense. This arrangement did not exist during the same period in 2023 . Related Party Interest Expense Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Related party interest expense $ (1,212) $ (69) $ (1,143) (1657) % Related party interest expense increased by $1.1 million for the three months ended September 30, 2024 compared to the same period in 2023, primarily due to interest expense due to our loan with Chongqing Leshi Small Loan Co., Ltd. (“Chongqing”), a related party. This increase was primarily due to our default on the related party note with Chongqing, in the first quarter of 2024, which triggered an increase in the interest rate as well as additional interest expense and penalties. Since the default, we continue to accrue all relevant interest and penalties. Other Income/ (Expense), Net Three Months Ended September 30, Change (in thousands) 2024 2023 Amount % Other income/(expense), net $ 361 $ (1,624) $ 1,985 122 % Other income was $0.4 million for the three months ended September 30, 2024, compared to other expense of $1.6 million for the same period in 2023. The $0.4 million of other income for the three months ended September 30, 2024 and the other expense of $1.6 million for the same period in 2023 were primarily attributable to the revaluation of foreign currency transactions denominated in non-U.S. currencies assessed at the end of each period. During the three months ended September 30, 2024, the U.S. dollar exchange rate to the Chinese currency CNY declined, resulting in a foreign currency transaction gain from the revaluation of foreign currency transactions, which was recorded as Other income. During the three months ended September 30, 2023, the U.S. dollar exchange rate to the Chinese currency CNY climbed up, resulting in a foreign currency transaction loss from the revaluation of foreign currency transactions, which was recorded as Other expense. 67 Comparison of results of operations for the nine months ended September 30, 2024 versus the nine months ended September 30, 2023: Nine Months Ended September 30, (in thousands) 2024 2023 Unaudited Condensed Consolidated Statements of Operations Revenue $ 304 $ 551 Cost of revenues 63,110 22,744 Gross profit (62,806) (22,193) Operating expenses Research and development 15,185 104,670 Sales and marketing 6,857 18,082 General and administrative 39,327 67,598 Settlement on accrued research and development expenses (14,935) — Lease impairment loss 7,673 — Loss on disposal on property, plant and equipment 2,511 3,698 Change in fair value of earnout liability — 2,033 Total operating expenses 56,618 196,081 Loss from operations (119,424) (218,274) Change in fair value of notes payable and warrant liabilities 28,927 90,030 Change in fair value of related party notes payable and related party warrant liabilities 315 5,110 Loss on settlement of notes payable (117,509) (204,885) Loss on related party notes payable (14,295) (17,248) Interest expense (5,386) (591) Related party interest expense (7,812) (139) Other income/(expense), net 599 (1,922) Loss before income taxes (234,585) (347,919) Income tax provision (3) (28) Net loss $ (234,588) $ (347,947) Revenues Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Revenue $ 304 $ 551 $ (247) (45) % Total revenue decreased by $0.2 million for the nine months ended September 30, 2024 compared to the same period in 2023 . This decline was primarily driven by a $0.2 million reduction in automotive sales revenue and adjustments to leasing revenue, as certain co-collaborators did not meet their public engagement obligations. Automotive sales in 2023 were largely attributable to the initial delivery of the FF 91 Futurist, which began in the third quarter of 2023 . Nine Months Ended September 30, (in thousands) 2024 2023 Amount % Cost of revenues $ 63,110 $ 22,744 $ 40,366 177 % Cost of revenues increased by $40.4 million for the nine months ended September 30, 2024 compared to the same period in 2023. This increase was primarily due to higher depreciation expenses from placing equipment into service to improve our production capabil ities, an increase in corporate cost absorption into inventory and cost of revenues, and the fact that vehicle production only began in the latter part of the second quarter of 2023. During the nine months ended September 30, 2024, we began transitioning our production capabilities to include both luxury and more affordable electric vehicles. This strategic shift, which is aligned with broader market demand, is expected to result in additional fixed cost allocations to cost of revenues as equipment is placed into service, while we continue to optimize our production efficiencies. 68 Research and Development (R&D) Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Research and development $ 15,185 $ 104,670 $ (89,485) (85) % R&D expense decreased by $89.5 million for the nine months ended September 30, 2024, compared to the same period in 2023. The most significant factor driving this reduction was a $51.6 million decrease due to headcount reductions and the transfer of R&D personnel to production roles. Additionally, engineering, design, and testing costs declined by $24.9 million, and information technology-related expenses decreased by $3.2 million. As we transition from an R&D focus to full-scale production, resources have been reallocated from R&D to manufacturing to enhance operational efficiency. This shift supports the commercialization of completed R&D developments while enabling targeted innovation in key areas. Strategic partnerships with technology providers and industry experts have also been established to sustain innovation with reduced internal costs. We have also begun shifting our R&D focus towards the development of more affordable electric vehicle platforms, expanding our technology portfolio to address broader market demands. This strategic shift ensures continued innovation across both luxury and more affordable segments, aligning with evolving industry trends. Sales and Marketing Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Sales and marketing $ 6,857 $ 18,082 $ (11,225) (62) % Sales and marketing expense decreased by $11.2 million for the nine months ended September 30, 2024 compared to the same period in 2023 . This reduction was primarily driven by a $6.8 million decrease in compensation expense, a $1.4 million decrease in general expenses (such as rent, rent related expenses, and insurance costs), and a $1.0 million decrease in professional services expenses. Despite a reduction in sales and marketing personnel, we continue to market effectively by leveraging our Co-Creation strategy, which involves partnerships with industry pioneers and influential personalities. Through this approach, we amplify our brand by engaging high-profile figures and involving users in our product development and marketing processes. Additionally, we host VIP events and participate in major industry showcases, to provide customers and stakeholders with immersive experiences of our flagship vehicles, further enhancing customer engagement and brand visibility. These efforts allow us to optimize our marketing reach and increase brand awareness while maintaining lower internal costs. General and Administrative Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % General and administrative $ 39,327 $ 67,598 $ (28,271) (42) % General and administrative expense decreased by $28.3 million for the nine months ended September 30, 2024, compared to the same period in 2023. This decline was primarily driven by a $14.8 million reduction in professional service fees, a $6.7 million decrease in general expenses, such as rent and insurance costs, and a $4.8 million reduction in wages and wage-related costs. Additionally, there was a $2.8 million decrease in depreciation expense. These reductions reflect our ongoing cost-cutting initiatives aimed at optimizing general and administrative expenses. We have implemented measures to streamline operations, including renegotiating vendor contracts, consolidating office space to reduce rent, and restructuring our workforce to lower wage-related expenses, all while maintaining operational efficiency. 69 Settlement of Accrued Research and Development expenses Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Settlement on accrued research and development expenses $ (14,935) $ — $ (14,935) NM* *NM = not meaningful Gain on settlement of previously accrued R&D expenses increased by $14.9 million for the nine months ended September 30, 2024 compared to the same period in 2023 . This gain resulted from a settlement that resolved ongoing disputes over unpaid invoices due to Palantir. As of the date of settlement, we had accrued approximately $19.9 million of R&D expense . Following arbitration, the parties reached a settlement in which we agreed to pay Palantir $5.0 million. We paid $0.2 million in cash and fulfilled the remaining $4.8 million obligation with the issuance of Class A Common Stock. On August 8, 2024, we issued Palantir 252,768 shares of Class A Common Stock valued at $2.4 million. As of September 30, 2024, we had an obligation to pay Palantir the remaining $2.4 million. We settled this obligation on October 1, 2024 through the issuance of 827,526 shares of Class A Common Stock. We recognized a gain of $14.9 million , reflecting the difference between the accrued expenses and the final settlement amount due to Palantir. Lease Impairment Loss Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Lease impairment loss $ 7,673 $ — $ 7,673 NM* NM = not meaningful During the nine months ended September 30, 2024, we recorded a $7.7 million impairment loss related to lease right-of-use (ROU) assets. This loss resulted from moving out of a leased store facility, a leased research facility and an administrative facility in China, as we worked with landlords to negotiate the related lease terminations. We have taken steps to optimize our operational footprint by reducing unnecessary overhead to align with current needs. These initiatives, including lease terminations and renegotiations, have contributed to a more efficient cost structure and helped reduce ongoing lease obligations. Loss on Disposal of Property, Plant and Equipment Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Loss on disposal on property, plant and equipment $ 2,511 $ 3,698 $ (1,187) (32) % Loss on disposal of property, plant, and equipment decreased by $1.2 million for the nine months ended September 30, 2024 compared to the same period in 2023. In 2024, we recognized a $2.5 million loss on the disposal of property, plant, and equipment, while in 2023, there was a non-recurring write-off of $3.7 million, primarily related to construction-in-process assets that were not expected to be used as part of the start of production. We dispose of equipment when the assets become obsolete, costly to maintain, or are replaced by more efficient technologies. Change in Fair Value of Earnout Liability Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Change in fair value of earnout liability $ — $ 2,033 $ (2,033) (100) % We did not have any earnout shares that were re-measured at fair value during the nine months ended September 30, 2024 . As of August 25, 2023, upon an increase in our authorized shares of Class A Common Stock, we reclassified the earnout shares from liability classification to equity classification. Once the number of authorized shares of our Class A Common Stock was increased, the earnout shares were determined to be equity classified under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity . During the nine months ended September 30, 2023, we recognized $2.0 million as the change 70 in fair value of earnout liability for when the equity-linked instruments were classified as derivative liabilities from time to time. Change in Fair Value of Notes Payable and Warrant Liabilities Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Change in fair value of notes payable and warrant liabilities $ 28,927 $ 90,030 $ (61,103) (68) % During the nine months ended September 30, 2024 and 2023, the fair value of our outstanding notes and warrants were revalued at lower values than in the preceding periods. Our outstanding notes and warrants were remeasured at predominantly lower fair values due to pricing inputs that use the market price of our Common Stock and debt discount rate, which have experienced a decline. The change in fair value during the nine months ended September 30, 2024 is smaller compared to the same period in 2023 due to a decline in the outstanding balance of notes payable during the nine months ended September 30, 2024 as compared with an increase in the outstanding balance of notes payable during the nine months ended September 30, 2023. Change in Fair Value of Related Party Notes Payable and Related Party Warrant Liabilities Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Change in fair value of related party notes payable and related party warrant liabilities $ 315 $ 5,110 $ (4,795) (94) % During the nine months ended September 30, 2024 and 2023, the fair value of our outstanding related party notes and warrants were revalued at lower values than in the preceding periods. Our outstanding notes and warrants were remeasured at predominantly lower fair values due to pricing inputs that use the market price of our Common Stock and debt discount rate, which have experienced a decline. The change in fair value during the nine months ended September 30, 2024, is smaller compared to the same period in 2023 due to a decline in the outstanding balance of related party notes payable during the nine months ended September 30, 2024 as compared with an increase in the outstanding balance of related party notes payable during the nine months ended September 30, 2023. Loss on Settlement of Notes Payable Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Loss on settlement of notes payable $ (117,509) $ (204,885) $ 87,376 (43) % The decrease in the loss on settlement of notes payable during the nine months ended September 30, 2024 was driven by smaller losses on extinguishment resulting from the modification of our notes payable accounted for as an extinguishment pursuant to the guidance in ASC 470-50, Debt—Modifications and Extinguishments , and a lower conversion volume during the nine months ended September 30, 2024. During the nine months ended September 30, 2024, we incurred a loss on extinguishment of $2.7 million as a result of entering into the Waiver Agreement, and noteholders converted $96.3 million of notes payable. During the nine months ended September 30, 2023, we incurred a loss on extinguishment of $11.4 million as a result of the Eighth Secured SPA Amendment, and noteholders converted $200.4 million of notes payable. Loss on Related Party Notes Payable Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Loss on related party notes payable $ (14,295) $ (17,248) $ 2,953 (17) % During the nine months ended September 30, 2024, related party noteholders converted $0.7 million of related party notes payable into 1,324,292 shares of our Class A Common Stock, and we recognized a loss on settlement of related party notes payable for the difference between the fair value of the shares issued and the fair value of the debt instrument. In addition, as discussed in Note 8, Related Party Transactions in the notes to the Unaudited Condensed Consolidated Financial Statements , we also recognized a $14.1 million loss on related party notes from the recognition of interest and penalties and the increase of 71 principal due to our breach of the agreement with Chongqing Leshi Small Loan Co., Ltd. There was no comparable related party loss in the comparable prior year period. In May 2023, we entered into Unsecured SPA Notes with Metaverse Horizon Limited (“MHL”), who is a related party, and V W Investment Holding Limited (“V W Investment”) . During the nine months ended September 30, 2023, MHL converted Unsecured SPA Notes with an aggregate principal balance of $18.7 million into 602,947 shares of Class A Common Stock, and we recognized a loss on settlement of related party notes payable for the difference between the fair value of the shares issued and the fair value of the debt instrument. Interest Expense Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Interest expense $ (5,386) $ (591) $ (4,795) (811) % Interest expense increased by $4.8 million for the nine months ended September 30, 2024 c ompared to the same period in 2023. This increase was p rimarily due to financial obligations associated with the Hanford, California manufacturing facility. We pursued a sale-leaseback arrangement for this facility to generate liquidity for operational and facility enhancements. However, due to conditions within the sale-leaseback agreement, the transaction was treated as a financing arrangement under GAAP, resulting in interest expense rather than lease expense. This arrangement did not exist during the same period in 2023. Related Party Interest Expense Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Related party interest expense $ (7,812) $ (139) $ (7,673) 5520 % Related party interest expense increased by $7.7 million for the nine months ended September 30, 2024 c ompared to the same period in 2023, primarily due to interest expense due to our loan with Chongqing, a related party. This increase was primarily due to our default on the related party note with Chongqing, in the first quarter of 2024, which triggered an increase in the interest rate as well as additional interest expense and penalties. Since the default, we continue to accrue all relevant interest and penalties. Other/(Expense) Income, Net Nine Months Ended September 30, Change (in thousands) 2024 2023 Amount % Other income/(expense), net $ 599 $ (1,922) $ 2,521 (131) % Other income was $0.6 million for the nine months ended September 30, 2024, compared to Other expense of $1.9 million for the same period in 2023. The $0.6 million of Other income for the nine months ended September 30, 2024 and the $1.9 million of Other expense for the same period in 2023 were primarily attributable to the revaluation of foreign currency transactions denominated in non-U.S. currencies assessed at the end of each period. During the nine months ended September 30, 2024, the U.S. dollar exchange rate to the Chinese currency CNY declined, resulting in a foreign currency transaction gain from the revaluation of foreign currency transactions, which was recorded as Other income. During the nine months ended September 30, 2023 , the U.S. dollar exchange rate to the Chinese currency CNY climbed up, resulting in a foreign currency transaction loss from the revaluation of foreign currency transactions, which was recorded as Other expense. Liquidity and Capital Resources Going Concern We have evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the Unaudited Condensed Consolidated Financial Statements are issued. Based on our recurring losses from operations since inception and continued cash outflows from operating activities (all as described below), we have concluded that there is substantial doubt about our ability to continue as a going concern for a period of one year from the date that the Unaudited Condensed Consolidated Financial Statements included in this Form 10-Q were issued. The Unaudited Condensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the Unaudited Condensed Consolidated Financial Statements have been prepared on 72 a basis that assumes we will continue as a going concern and that contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. We have and will continue to devote substantial effort and, to the extent available, capital resources, to strategic planning, engineering, design, and development of our electric vehicle platform, development of vehicle models, finalizing the build out of the FF ieFactory California manufacturing facility, and capital raising. We incurred cumulative losses from operations, negative cash flows from operating activities, and have an accumulated deficit of $4,193.1 million, an unrestricted cash balance of $7.3 million and a negative working capital position of $168.3 million, excluding restricted cash, as of September 30, 2024. During 2023, we delivered our first vehicles but expect to continue generating significant operating losses for the foreseeable future. We have funded our operations and capital needs primarily through the issuance of related party notes payable and notes payable (see Note 7, Notes Payable and Note 8, Related Party Transactions in the notes to the Unaudited Condensed Consolidated Financial Statements), convertible notes, and the sale of common stock. Pursuant to the Secured SPA, the Unsecured SPA, the Unsecured Streeterville SPA, the FFVV Joinder, and the Senyun Joinder (collectively the “SPA Commitments”) (see Note 7, Notes Payable and Note 8, Related Party Transactions in the notes to the Unaudited Condensed Consolidated Financial Statements), we obtained commitments from several investors. As of September 30, 2024, the SPA Commitments totaled $554.5 million, of which $365.3 million was funded, $189.2 million remained to be funded, and $38.7 million in principal was outstanding. As of September 30, 2024, Optional Commitments under the SPA Commitments totaled $366.0 million, of which $48.4 million was funded, $317.6 million remained to be funded, and $10.4 million was outstanding. The remaining amounts to be funded as of September 30, 2024, are subject to the achievement of delivery milestones, satisfaction of closing conditions, and satisfaction or waiver of other conditions. We may be unable to satisfy the closing conditions under the SPA Commitments or obtain additional incremental convertible senior secured note purchasers under the SPA Commitments or other debt or equity financing in a timely manner, on acceptable terms, or at all. On September 5, 2024, we entered into another Securities Purchase Agreement (the “Junior Secured SPA”) with certain institutional investors as purchasers (the “Junior Secured SPA Investors”). Pursuant to the Junior Secured SPA, the Junior Secured SPA Investors agreed to purchase certain secured promissory notes (the “Junior Secured SPA Notes”), warrants, and incremental warrants for approximately $30.0 million, of which $22.5 million was paid in cash and approximately $7.5 million was converted from a previous loan to us, in two closings. As of September 30, 2024, we received $20.8 million of the commitments and the remaining commitments were received by October 30, 2024. Additionally, the Junior Secured SPA Investors were given an incremental warrant to purchase additional Junior Secured SPA commitments, up to amounts originally funded (the “Incremental Warrants”), at the same terms and conditions as the original Junior Secured SPA Notes. The Incremental Warrants are exercisable immediately, entirely at the option of the holder, with a term of one year to purchase the additional Junior Secured SPA Notes at an exercise price equal to the principal amount of the Junior Secured SPA Notes issued to the Junior Secured SPA Investor. On November 11, 2022, we entered into a three-year Standby Equity Purchase Agreement (the “SEPA”) with YA II PN Ltd. (“Yorkville”). Under terms of the SEPA, we may, at our option, issue and sell from time to time up to $200.0 million (which can be increased up to $350.0 million in the aggregate under our option) of Class A Common Stock to an affiliate of Yorkville Advisors, subject to certain limitations. As of September 30, 2024, we had the right to issue and sell up to an additional $192.5 million, or $342.5 million if we exercise our option under the SEPA, of Class A Common Stock under the SEPA. In addition, on September 26, 2023, we entered into a sales agreement with Stifel, Nicolaus & Company, Incorporated, B. Riley Securities, Inc., A.G.P./Alliance Global Partners, Wedbush Securities Inc. and Maxim Group LLC, as sales agents, to sell shares of Class A Common Stock, from time to time, with aggregate gross sales proceeds of up to $90.0 million pursuant to the Registration Statement as an “at-the-market” offering under the Securities Act (the “ATM Program”). The ATM Program was the primary source of liquidity for us during the period from September 2023 through December 2023. Under applicable SEC rules and regulations, because we failed to timely file our Form 10-K and the Quarterly Report Form 10-Q for the quarter ended March 31, 2024, we are not eligible to use the S-3 registration process, which restricts our ability to raise capital through that streamlined method of offering securities and cannot access the ATM Program. As such, our current primary source of liquidity is the issuance of various convertible note instruments. Our ability to issue and sell additional shares of common stock or warrants under the SEPA and ATM Program is constrained by the number of authorized shares of our common stock. We must consider shares issuable under convertible debt, warrants or other obligations with equity rights. In addition, equity issuances can potentially trigger provisions under the SPA Commitments and Junior Secured SPA Notes that increase the number of shares to be issued upon conversion and reduce the strike price of related warrants. This could result in us having inadequate authorized shares to meet our outstanding commitments. 73 We project that we will require substantial additional funds to continue operations and support production of the FF 91. If we are unable to find additional sources of capital, we will not have sufficient resources to fund our outstanding obligations and continue operations and we will likely have to file for bankruptcy protection and our assets will likely be liquidated. Our equity holders would likely not receive any recovery at all in a bankruptcy scenario. We continue to explore various funding and financing alternatives to fund our ongoing operations and to ramp up production. The particular funding and financing mechanisms, terms, timing, and amounts depend on our assessment of opportunities available in the marketplace and the circumstances of the business at the relevant time. However, there have been delays in securing additional funding commitments, which have exacerbated supply chain pressures, among other things. If our ongoing capital raising efforts are unsuccessful or significantly delayed, or if we experience prolonged material adverse trends in our business, production will be delayed or decreased, and actual use of cash, production volume and revenue for 2024 will vary from our previously disclosed forecasts, and such variances may be material. While we are actively engaged in negotiations with potential financing sources, we may be unable to raise additional capital on terms acceptable to us or at all. In addition to the risk that our assumptions and analyses may prove incorrect, the projections may underestimate the professional fees and other costs to be incurred related to the pursuit of various financing options currently being considered and ongoing legal risks. Capital needs to fund development of our remaining product portfolio will highly depend on the market success and profitability of the FF 91 and our ability to accurately estimate and control costs. Apart from the FF 91 series, substantial additional capital would be required to fund operations, research, development, and design efforts for future vehicles. Since April 2023, we have been in default on, and since January 1, 2024, we have been in breach of, our debt agreement with Chongqing Leshi Small Loan Co., Ltd., a related party, with an outstanding principal balance of $7.7 million and interest payable of $20.0 million as of September 30, 2024. During 2024, we were also in default on our Unsecured Convertible Note obligations and various related party notes (see Note 7, Notes Payable and Note 8, Related Party Transactions in the notes to the Unaudited Condensed Consolidated Financial Statements). Due to the cross default provisions of the SPA Notes and Junior Secured SPA Notes, we were and have been in default on the SPA and Junior Secured Commitments and we are presenting the related notes as current. Sources of Liquidity As of September 30, 2024, we maintained unrestricted cash on hand totaling $7.3 million, which was held for working capital and general corporate purposes. We also have access to various sources of additional capital, including the SEPA, the ATM Program, the Secured SPA, the Unsecured SPA, the Unsecured Streeterville SPA, the FFVV Joinder, and the Senyun Joinder (collectively the “SPA Commitments”), the Junior Secured SPA and other unsecured convertible notes. Our current primary source of liquidity is the issuance of various convertible note instruments pursuant to the SPA Commitments and the Junior Secured SPA. Our ability to access these sources of capital and further information on amounts available is discussed in Note 2, Liquidity and Capital Resources and Going Concern in the notes to the Unaudited Condensed Consolidated Financial Statements. Significant Related Party Notes Payable and Notes Payable Facilities We have been significantly funded by notes payable from related parties and third parties. The related parties include employees as well as affiliates of employees and affiliates and other companies controlled or previously controlled by our founder and Chief Product and User Ecosystem Officer. For more information on the outstanding related party notes payable and notes payable as well as the related schedules of maturities, see Note 7, Notes Payable , and Note 8, Related Party Transactions , of the notes to the Unaudited Condensed Consolidated Financial Statements. 74 Related party notes payable consists of the following as of September 30, 2024: (in thousands) Contractual Maturity Date Contractual Interest Rates Net Carrying Value Related party notes – Unsecured Convertible April 8, 2024 0.0427 $ 1,302 Related party notes – China December 2023 18.0% $ 7,706 Related party notes – China various other Due on Demand —% 3,805 Related party notes – Convertible FFGP May 2024 4.27% 250 Related party notes – FFGP Various 2024 4.27% - 5.27% 1,576 Related party notes – Other December 2024 12.0% 75 14,714 Less: Related party notes payable, current (14,714) Total: Related party notes payable, less current $ — We have entered into notes payable agreements with third parties, which consist of the following as of September 30, 2024: (in thousands) Contractual Maturity Date Contractual Interest Rates Unpaid Principal Balance Fair Value Measurement Adjustments Original Issue Discount and Proceeds Allocated to Warrants Net Carrying Value Secured SPA Notes Various 10%-15% $ 26,336 $ (4,146) $ (1,976) $ 20,214 Unsecured SPA Notes * Various dates in 2029 10%-15% 22,802 398 (2,350) 20,850 Junior Secured Notes September 2029 10% 20,769 (11,341) — 9,428 Collateralized loan October 2028 28% 4,805 — (419) 4,386 Notes payable – China other Due on Demand —% 4,950 — — 4,950 Auto loans October 2026 7% 58 — — 58 $ 79,720 $ (15,089) $ (4,745) 59,886 Less: Notes payable, current portion (56,086) Total: Notes payable, less current portion $ 3,800 * includes amounts attributed to the Unsecured Streeterville SPA All notes, except amounts due in greater than 12 months pursuant to the Collateralized Loan, are classified as current as of September 30, 2024. Cash Flow Analysis Presented below is a summary of FF’s cash flows for the periods indicated: (in thousands) Nine Months Ended September 30, 2024 2023 Net cash provided by (used in): Operating activities $ (51,796) $ (240,370) Investing activities $ (572) $ (10,846) Financing activities $ 55,685 $ 237,565 Effect of exchange rate changes on cash and restricted cash $ 7 $ 3,704 75 Operating Activities We continue to experience negative cash flows from operating activities as we design and develop our vehicles and build our infrastructure in both the United States and China. Cash flows from operating activities are significantly impacted by our capital investments to support business growth, particularly in enhancing the production capabilities of our electric vehicles, corporate planning, and general and administrative functions. Additionally, our operating cash flows are influenced by working capital requirements to support growth, as well as fluctuations in personnel-related expenses, accounts payable, accrued interest, other current liabilities, deposits, and other current assets. Net cash used in operating activities was $51.8 million for the nine months ended September 30, 2024 as compared to $240.4 million for the nine months ended September 30, 2023, representing an improvement of $188.6 million . This improvement was primarily driven by a $113.4 million reduction in net loss for the nine months ended September 30, 2024, compared to the prior period. Significant non-cash adjustments to net loss included a $61.5 million decrease in fair value adjustments on notes payable and warrant liabilities and a $25.8 million increase in depreciation and amortization. These were partially offset by an $87.4 million decrease in losses on the settlement of notes payable and a $14.9 million gain from the settlement of previously accrued R&D expenses. Changes in operating assets and liabilities also significantly impacted cash flows from operating activities. Key contributors included a $37.7 million change in inventory balances, a $26.9 million change in accrued expenses and other current liabilities, a $20.4 million change in deposits, and a $11.0 million change in other current and non-current assets, partially offset by a $15.6 million change in accounts payable. Investing Activities Net cash used in investing activities was $0.6 million and $10.8 million for the nine months ended September 30, 2024 and 2023, respectively, representing a decrease of $10.3 million . This change was driven by a significant decrease in the acquisition of fixed assets due to the reduction of liquidity. Financing Activities Given the challenging financing landscape, we continue to pursue strategic opportunities to strengthen our cash position and support our growth objectives, primarily utilizing a mix of convertible loans and non-convertible funding alternatives. Net cash provided by financing activities was $55.7 million and $237.6 million for the nine months ended September 30, 2024 and 2023, respectively, reflecting a decrease of $181.9 million. Proceeds from notes payable in the nine months ended September 30, 2024 totaled $54.0 million, down from $208.7 million in the same period in 2023, a reduction of $154.6 million. Proceeds from related-party notes payable for the nine months ended September 30, 2024 were $3.1 million, down from $19.8 million in the same period in 2023, a reduction of $16.7 million. Furthermore, cash generated from common stock sales decreased by $8.5 million for the nine months ended September 30, 2024 compared to the same period in 2023. Effect of Exchange Rate Changes on Cash and Restricted Cash The effects of exchange rate changes on cash and restricted cash was immaterial for the nine months ended September 30, 2024 and $3.7 million for the nine months ended September 30, 2023. The effects of exchange rate changes on cash and restricted cash result from fluctuations in the translation of assets and liabilities denominated in foreign currencies, primarily Chinese currency CNY . Fluctuations in exchange rates against the U.S. Dollar may positively or negatively affect our operating results. Off-Balance Sheet Arrangements We did not have any material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Thus, we did not have any off-balance sheet arrangements as of September 30, 2024 and December 31, 2023. 76 Critical Accounting Estimates The preparation of our Unaudited Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent liabilities, and the reported amounts of expenses during the reporting period. Management has based its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are material differences between these estimates and actual results, future financial statement presentation, financial condition, results of operations, and cash flows will be affected. Given the global economic climate, estimates are subject to additional volatility. Critical accounting estimates are defined as estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. For a description of our critical accounting estimates, refer to the section titled “Critical Accounting Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of the Form 10-K. As of the date of this report, there have been no changes to our critical accounting estimates described in the Form 10-K that have had a material impact on our Unaudited Condensed Consolidated Financial Statements and related footnotes. Recent Accounting Pronouncements See the section titled “ Recent Accounting Pronouncements ” in Note 1, Nature of Business and Organization and Basis of Presentation in our Unaudited Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q for a discussion about recent accounting pronouncements that are determined to be applicable to us. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Pursuant to Item 305(e) of Regulation S-K, FF is not required to provide the information required by this Item as it is a “smaller reporting company.”